Mahesh borrowed 6970 from Becky He signed a contract agreein

Mahesh borrowed $6,970 from Becky. He signed a contract agreeing to pay it back 9 months later with 6.05% simple interest. After 7 months, Becky sold the contract to Stan at a price that would earn Stan 5.00% simple interest per annum. Calculate the simple interest rate that Becky earned during the period that she held the contract.

Solution

Mahesh will pay interest at the end of 9 months = 6970 * 6.05% * 9/12 = 7286.26

For stan to earn 5% per annum simple interest, interest applicable for 2 months remaining in the contract would be = 5% * 2/12 = 0.8333%

Present value of 7286.26 at 0.8333% (selling price of contract) = 7286.26/ (1+0.008333) =7226.05

Profit made on contract by Becky = 7226.05 - 6970 = 256.05 over 7 month period.

Interest percentage = 256.05 /6970 * 12/7 *100 = 6.30%.

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